Most people only think about taxes during preparation season. For those of us in the tax and accounting business, however, it’s top-of-mind far beyond March and April. Recent reform has (or will) impact nearly every taxpayer, but regardless of whether you’re happy with this year’s return, taking these steps can help you get more proactive advice from your tax advisor.
Stay on top of filing. It’s completely understandable that not everyone finds taxes as fun as we do (insert nerd joke here). However, they can’t be ignored, no matter how much you dread them. There’s no harm in filing an extension if you can’t make the April 18 deadline, but don’t neglect to file annually or you’ll miss opportunities and create bigger headaches for yourself (and your advisor).
Over-communicate. I can’t tell you how many times we’ve uncovered important information in client conversations that they didn’t realize should be shared. For example, if you receive a significant bonus, your income changes or you receive a seemingly inconsequential letter from the IRS, be sure to tell your advisor – even if you don’t think it’s necessary. How we handle these situations now can have far-reaching consequences, and if repercussions accumulate year-over-year, it limits our ability to help.
Request a consultation. Business owners, in particular, should engage in tax planning rather than simply preparation, and this begins by having consultations with your tax advisor year-round. Although the effectiveness of tax planning varies by person (and households with simple W2-based returns often don’t need it), it can be helpful to see a tax return projection that incorporates recent changes in your life or business. If you gain an inheritance, retire and start to draw social security, or begin renting your prior home, your tax advisor can anticipate the impact on next year’s return. Tax planning is critical for business owners whose income fluctuates or who must factor depreciation into the timing of large business purchases.
Ask about new opportunities. Your tax advisor should proactively bring opportunities to your attention, but if you’re informed about them before the height of tax season, there are things you can do to prepare. For example, adjust your withholdings – even halfway through the year – if you’re not happy with this year’s return. Maintain a ledger of charitable contributions and ensure you receive receipts from each charity by year-end, storing them in a designated folder or filing cabinet. A ledger also helps you track cumulative contributions to determine the most advantageous timing. Bunching donations together rather than spreading them over multiple tax years can help increase your itemized deductions.
Tax season doesn’t have to be stressful or overwhelming. By starting early, staying organized, working with a knowledgeable tax advisor and more – you can make the most of tax season and ensure that you are maximizing your benefits.